Recently, the housing market has become so incredibly hot that people are purchasing homes significantly over asking price; especially in markets such as the Bay Area and Seattle.
Although there are obvious methods of winning bids for home purchases, such as providing all-cash offers, what has also become more popularized is the waiving of contingencies.
In real estate, a contingency indicates that an offer is accepted, but can only be completed when certain conditions are met. If there are multiple offers for a property, the home seller may be more inclined to accept the offer with fewer contingencies.
To increase their chance of having their offer chose, a home buyer may take the risk of waiving their inspection contingency.
Home buyers should contemplate the risks of waiving their inspection contingency based off of certain conditions. For example, a property built 50 years ago may have more major issues compared to a recently constructed property. There is lower risk if a home buyer purchases a home from someone they know (ex. a friend).
Nevertheless, home buyers who waive their inspection contingency should still do a thorough walkthrough of the property to reduce the risk of overlooking major issues.
<aside> 💡 Home buyers can still do their own walkthroughs of the property even if they waive their inspection contingency
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When a buyer places a bid on a home, they place a deposit or earnest money for the property. If the buyer’s bid is accepted, they are expected to provide the payment for the home by a certain deadline. If a buyer is unable to obtain the needed funds (ex. via mortgage loan), then they will not receive their deposit or earnest money back.
Many buyers today, especially those with decent financial prospects, are waiving their financing contingencies in hot markets.
A common contingency, to protect the buyer, is the appraisal contingency. Mortgage lenders perform appraisals on properties to determine whether the home is worth the value of the mortgage loan. The appraisal contingency indicates that, during the home appraisal process, then appraised value needs to be at least the offered price; if the value is less than the offered price, then the buyer can walk away from the deal and receive their deposit back.
Buyers today are taking the risk of waiving appraisal contingencies to increase their chances of having their offer accepted.
Overall, there are multiple contingencies that home buyers can waive to increase their likelihood of having their bids accepted. On the contrary, these buyers should be cautious about the risks that are imposed by waiving these contigencies.